This Week's Feature
Lessons from Enron
Excerpted from Texas Employment Law Letter, written by attorneys at the law firm Ford & Harrison LLP
by Michael P. Maslanka
The Enron case is over. Ken Lay and Jeff Skilling were found guilty. Complex facts and a lengthy trial with high-priced defense lawyers on one side and the unlimited resources of the federal government on the other, a titanic struggle, and a massive scandal all call for momentous ethical lessons to be learned. Do they? My verdict on that question is as resounding as the jury's was on Lay and Skilling's guilt. "No."
The lessons learned aren't complex; they're simple.
First, remember this: Lay (who has died of a heart attack since the verdict) and Skilling weren't found guilty because they misunderstood the hard stuff; it's because they ignored the simple stuff. You don't scrub the balance sheet by unloading debt onto another entity and then covering it up. It's the same for each of us.
Let me tell you a story. I was defending an age discrimination case once, representing an employer, with a very experienced lawyer representing the employee. The case had just been filed, and we were flying to Oakland together to meet with our respective clients.
Suddenly, he let out a yelp. While going through the documents, he had seen that the HR manager had listed the names, ages, and salaries of all potential candidates to be let go, including the employee who had sued. "This is a smoking gun! This is devastating! This is not under subpoena and must be destroyed!"
Ever hear of prospective hindsight? I hadn't, but like a blind pig who occasionally roots up an acorn, I stumbled onto the idea that night in midair, telling my distressed colleague: "Imagine it's a year from now and the HR director is being deposed, and he's asked if he ever created a document on the reduction in force and where is it now? And imagine that the next week we are standing in front of a federal judge, explaining the shredding process."
The next day, my better-rested colleague saw things differently. He remembered the fundamentals.
And culture — what you value and what you don't — also is fundamental. Enron fumbled yet another fundamental here: Its culture failed. It rewarded conformity, not dissent. No one spoke up because no one valued those who spoke up.
I tell new lawyers who work with me that they need to remember only one single thing, no more. It's a question: "Why do airplanes crash?" They invariably give me a puzzled look, taking stabs at a response.
I always end up telling them the answer: The copilot sees a flashing red light on the console and says nothing, thinking to herself, "If something was wrong, the pilot, with 25 years of experience, would know. He'll get mad at me if I speak up, and my career will be derailed. So I won't say anything."
That's why airplanes crash. Basics and openness, openness and basics. Like the song says, the fundamental things apply as time goes by. All simple stuff.
Here's another fundamental: The greatest enemy of ethical decisionmaking is a time-pressured decision.
How many times do we hear it? We must get the widgets out by 5:00 p.m., no ifs, ands, or buts; that employee must be fired by close of business, no matter what; the Challenger must launch today -- the whole world is watching, and we'll look like fools if it doesn't.
What can you do to slow down a runaway decisionmaking train? Here are a few ideas. First, ask yourself, "If we had twice as much time to make this decision, would we still do the same thing?"
Or try to temporize, which is a $400-an-hour word for stalling. To temporize, avoid rapid back-and-forth e-mail, and try using a positive/ negative sentence, something like, "While I appreciate the need to make a decision soon (the positive), we still must fully consider all the issues, which we can do only in a face-to-face meeting (the negative)."
Had someone at Enron said, "Hey, let's wait before doing these deals and think things through," then the company's bad business decisions might never have morphed into criminality.
The simplest, most important lesson is this: Enron didn't have to happen. It all could have been avoided. That's why it's a tragedy.
The simple lesson for each and every person reading what I'm writing (including yours truly) is that the same thing could happen to us. We could be Lay. We could be Skilling. We could be like any of the others who copped a plea.
Decisionmaking is an arc, sometimes bending toward the right choice, sometimes bending toward the wrong one. We get to choose.
Copyright © M. Lee Smith Publishers LLC. This article is an excerpt from TEXAS EMPLOYMENT LAW LETTER. TEXAS EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Texas employment law. Questions about individual problems should be addressed to the employment law attorney of your choice. The State Bar of Texas does designate attorneys as board certified in labor law.
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- When is it time to involve HR?
- Sarbanes-Oxley: a hidden trap for nonprofit employers
- Shredding by the book
- Revisiting the unforeseeable collapse of Arthur Andersen
Other resources
- HR Executive Special Reports: Ethics and Fiduciary Duties
- A session on making ethical business decisions is being offered at the AEIS conference.
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